Fintechs: A new Paradigm of Growth

Fintechs: A new Paradigm of Growth

Rapid technological progress, changing consumer behavior and regulatory support have brought fintech companies from the periphery to the forefront of the financial market.

With their innovative, differentiated and customer-centric approaches, fintech companies have changed the industry. This is stated in a new report by the international consulting company McKinsey. The organization estimates that as of July 2023, the market capitalization of publicly traded fintech companies was $550 billion (double 2019). The number of unicorn companies (valued at $1 billion or more) increased from 39 to 272 during the corresponding period.

However, since 2022, there has been a decline in the development dynamics of the fintech industry. In 2021–2022 venture capital funding fell 40% from $92 billion to $55 billion. As McKinsey experts note, fintech companies are forced to optimize costs and change business strategies in response to tightening macroeconomic conditions. Despite the decline in funding, fintech is still one of the fastest growing industries. It is expected that in the period from 2022 to 2028. Revenues of fintech companies will grow three times faster than in the traditional banking sector.

Growth factors:

  • Digital transformation of the banking industry - more than 73% of banking transactions are carried out in digital format.
  • Digitalization of developing countries. In 2022, there were 800 million mobile accounts in Africa – about 50% of the global total.
  • Development of non-traditional banking – payment companies that offer standard banking services online.
  • Growing consumer demand for digital financial services, especially in developing countries.

To ensure sustainable growth for fintech companies, McKinsey recommends:

  • Reviewing the development strategy, focus on creating a “strong core” (core business), expanding into related industries and geographic regions and, if necessary, downsizing.
  • Developing strategic partnerships with other companies (including through mergers or acquisitions).
  • Optimizing costs and maintaining the ability to respond flexibly to emerging challenges.
  • Maintaining an innovative and open corporate culture.

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